Reporting Requirements Under the New Corporate Transparency Act

The Corporate Transparency Act (“CTA”) is a groundbreaking new federal law designed to combat money-laundering and other nefarious activity conducted via shell companies that went into effect January 1, 2024. 

It represents a major change in how the U.S. government monitors ownership of many U.S. companies by requiring certain “Reporting Companies” to provide information in the form of a Beneficial Interest Ownership Report (“BOIR”) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) regarding their beneficial owners, i.e., individuals who ultimately own or control the company.

What are Reporting Companies?

Reporting Companies include both domestic and foreign entities. Domestic Reporting Companies include corporations, LLC’s, LLP’s, and other similar entities. Foreign Reporting Companies include entities formed in a foreign country that are also registered to do business in any U.S. state.

The CTA exempts a number of entities from these reporting requirements, including but not limited to: SEC-reporting companies, insurance companies, public accounting firms, banks, credit unions, and most larger operating companies, e.g., those which: (i) employ more than 20 full-time employees in the United States; (ii) filed in the previous year Federal income tax returns reporting more than U.S.$5 million in gross receipts or sales; and, (iii) operate and have a presence at a physical office within the U.S.

Who is a Beneficial Owner?

A Reporting Company’s beneficial owner is an individual who, directly or indirectly, through contract or other relationship, either exercises substantial control over the entity or owns or controls at least 25% of the entity’s equity.

“Substantial control” over a Reporting Company includes individuals who: (i) are senior officers of the company; (ii) can appoint or remove senior officers or directors; and (iii) have substantial influence over important company decisions within the company.

While the definition of a Beneficial Owner covers a wide range of circumstances, it specifically excludes several types of persons, including but not limited to:

• A minor child if the information of a parent or legal guardian is reported in the BOIR.
• An individual acting as a nominee, custodian or agent on behalf of another individual.
• An employee of the reporting company who is not a senior officer and whose control over or economic benefits from the company is derived solely from the person’s employment.

What Information Must Companies Report?

Reporting Company Information. In its BOIR, a Reporting Company is required to provide: (i) its legal name and its trade names; (ii) its address; (iii) where it was formed or registered; and (iv) its FID or EIN.

Beneficial Owner Information. A Reporting Company is required to provide the following information on its Beneficial Owners: (i) legal name, birthdate, and home address; (ii) an identifying number from a driver’s license, passport, or other approved government document; and (iii) an image of the approved document that contains the identifying number.

If the Reporting Company is formed on or after January 1, 2024, information related to the company applicant must also be filed. A company applicant is both (i) the individual who directly files the document that creates or registers the company, and (ii) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another. The same information is required to be filed regarding the company applicant as the beneficial owners.

Will the BOI Reports be Publicly Available? 

No. The information is generally not publicly available. It can be disclosed: (i) only to law enforcement agencies in specified limited circumstances, or (ii) only with the company’s consent, to financial institutions in connection with their know-your-customer obligations.

When Must Companies Report?

A Reporting Company formed before January 1, 2024, must file its initial BOIR no later than January 1, 2025. Companies created or registered after January 1, 2024, must file their initial BOIR 90 days after receiving notice of their creation or registration.

After the initial filing, there is no annual or quarterly BOIR filing requirement; however, Reporting Companies have 30 days to amend or correct their BOIR after changes to filed information are made or incorrect information is discovered. 

How Do I File?

A company required to file a BOIR can do so electronically through a secure filing system available via FinCEN’s website. https://boiefiling.fincen.gov/. There is no filing fee.

While FinCEN’s online e-filing system is designed to be user-friendly, companies may use their accountant, law firm, or a third-party service provider to prepare and file the reports on their behalf.

Are There Penalties for Violating the CTA?

Any person who provides false information or fails to comply with CTA reporting requirements is liable for civil penalties of up to U.S. $500 for each day that the violation continues. Violators are also subject to criminal penalties of imprisonment of up to two years and fines of up to U.S. $10,000.

If you have any questions or seek further guidance on the CTA, please contact Tom Herman at 617-228-4415 or [email protected].

(c) 2024 Smith Duggan Cornell & Gollub LLP Disclaimer: The information contained in this document is not intended as legal advice. It is provided for informational purposes only.

January 17, 2024